Aug. 12 (Bloomberg) -- Bill Gross reduced his holdings of
Treasuries and government-related debt in July as speculation
increased that the Federal Reserve would accelerate the pace of
interest-rate increases projected for next year.

The proportion of U.S. government-related debt in Pacific
Investment Management Co.’s $223 billion Total Return Fund was
45 percent, versus 47 percent in June, data posted yesterday on
the company’s website showed. That compared with 50 percent in
May, the highest level since 54 percent in July 2010.

The Fed, which has held the benchmark interest-rate target
at virtually zero since 2008, will remain accommodative after
wage growth in the U.S. was little changed in July, Gross,
manager of the world’s biggest bond fund said in a Bloomberg
Radio interview on Aug. 1.

Wages “are not raging,” Gross said on “Bloomberg
Surveillance” with Tom Keene. “American wages on Main Street
are Janet Yellen’s No. 1 concern.”

Gross increased non-U.S. developed debt to 17 percent, the
most since December 2011, from 16 percent, according to the
website data. He held the Total Return Fund’s holdings of
emerging-market bonds at 9 percent in July, matching the June
proportion, the biggest since March 2012.

Mortgage Bonds

A Bank of America Merrill Lynch index of global government
debt excluding the U.S. returned 0.6 percent in July and 5.3
percent this year through yesterday. That compares with a 0.2
percent loss last month and a 3.7 percent gain since Dec. 31 for
U.S. Treasuries, a separate gauge shows.

Pimco reduced the fund’s mortgage-bond holdings in July to
20 percent, from 22 percent the previous month. Holdings of
money-market debt and cash-equivalent securities were negative 8
percent, compared with negative 11 percent in June.

The Total Return Fund’s holdings in the U.S. credit
category, which includes investment-grade and high-yield
securities, were unchanged at 12 percent, according to the data.

Pimco, a unit of the Munich-based insurer Allianz SE,
doesn’t comment directly on monthly changes in holdings or
specific types of securities within a market sector. Its U.S.
government-related category includes holdings of U.S. Treasury
notes, bonds, agency debt, interest-rate swaps and inflation-protected securities.

The fund has returned 3.86 percent this year, beating 46
percent of its peers. Last year it lost investors 1.9 percent,
the most since 1994, trailing 66 percent of peers.

It had $830 million of net investor withdrawals in July,
the smallest month since redemptions began in May 2013,
Morningstar Inc. reported Aug. 4. Investors began pulling money
from the fund in May when the Fed first signaled it would unwind
stimulus measures, fueling concern rising interest rates would
cause losses.

Fed Wager

Gross has been betting on shorter-term Treasuries with a
view that the Fed will not raise rates too soon. The securities
have underperformed longer-term debt as signs of economic
improvement spurred bets the central bank will accelerate
interest-rate increases. Shorter-term debt is more sensitive to
investor expectations of monetary policy than longer-term peers.

Fed funds futures contracts showed about a 70 percent
chance the central bank will increase its benchmark to at least
0.5 percent by September 2015.

The U.S. added 209,000 jobs in July, the Labor Department
reported Aug. 1 in Washington. While it was the sixth straight
month payrolls rose by more than 200,000 positions, the figure
fell short of the 230,000 forecast in a Bloomberg survey.

Average hourly earnings were $24.45 in July, versus $24.44
in June, the data showed.

(An earlier version of this story was corrected to change
the direction of prospective Federal Reserve policy moves in
first paragraph.)